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Strategies & Market Trends : 2026 TeoTwawKi ... 2032 Darkest Interregnum -- Ignore unavailable to you. Want to Upgrade?

To: 2MAR$ who wrote (77921)	8/18/2011 6:40:17 PM
From: TobagoJack	Read Replies (2) \| Respond to of 217548

just in in-tray, per greed & fear · Last week’s record €22bn ECB buying of European sovereign debt, presumably mostly Italian and Spanish bonds, shows the extent to which the ECB balance sheet is becoming ever more exposed. It also underlines the amount of money being required to keep the present Euroland fudge going. This in turn highlights the urgent need not only to expand the powers of the EFSF but also to increase its funding. · The moment discussions of increasing EFSF’s capacity come up, market attention is likely to return to France given its formal role as the second biggest contributor to the EFSF. All investors are advised to keep a close eye on French government bond yields relative to 10-year bunds. This spread is now the key fault line to monitor for a guide as to the exact timing of the next wave of the Euroland crisis. · The larger become the ECB’s bond purchases the harder it will become for the ECB to continue to sterilise. The absurdity of ECB President Trichet’s recent two rate hikes in April and July is becoming ever clearer as all the data is signalling a sharp slowdown in Euroland economic growth. · In GREED & fear’s view Euroland is likely to see a much more significant deterioration in economic growth during the next six months or so than is America, reflecting the combination of recent monetary tightening, relative currency strength and dramatic fiscal tightening in much of the periphery. Further rate hikes in Euroland seem unimaginable. Indeed it is probably only a matter of time before there is recognition of the need to ease. · The euro looks an increasingly good currency for macro investors to speculate against. Investors are advised to short the euro now. GREED & fear’s preferred trade would be to short the euro against the Singapore dollar; though GREED & fear would also prefer to own the US dollar over the euro. Global equity investors should now look to buy into Euro-based multinationals geared into emerging market revenue streams. · The move that would definitely send the euro weaker would be a decision by the ECB formally to abandon sterilisation and simply start monetising Euroland’s bad sovereign debt. The pressure to move in this direction will continue to mount. Euroland remains by far the most likely trigger of the next wave of global risk aversion. · The recent moves to ban short selling of financial stocks in France, Spain, Italy and Belgium have simply created a bounce for investors or traders to bet against. For those who have not yet shorted European banks, and cannot now do so because of the new rules, GREED & fear would suggest shorting the obvious most vulnerable British banks where a similar ban has not been implemented yet. · A further threat facing the British banks is that regulators seem likely to ring fence British banks’ retail banking operations from their investment banks and trading sides to a far greater extent than previously supposed. This clearly offers a direct threat to the business models of some of Britain’s largest banks. · GREED & fear also maintains a fundamentally deflationary view of the US where inflationary pressures are probably now peaking while the personal consumption trend is weakening. GREED & fear continues to expect an announcement of a third episode of quanto easing before the end of this calendar year. But the likely weakening trend of the euro against the US dollar will make the next episode of quanto easing less effective since it will raise the risk of borrowing dollars to invest in risky assets. · GREED & fear also still expects some move on the fiscal front in the US before the end of this calendar year. At a minimum Obama will try to extend the payroll tax cuts and unemployment benefits. With the Republicans commencing their presidential primary season, the incumbent Obama has a lot of ground to make up. · The recent acceleration in the appreciation of the renminbi raises the issue of whether this is just part of the anticipated annualised 5-7% appreciation. Or whether there has been a fundamental change in exchange rate policy. There are certainly those in Beijing who have been calling for some time for a more rapid appreciation of the renminbi. Still investors should not assume such a dramatic change in policy in Beijing has taken place until there is concrete evidence given the nature of the regime. · GREED & fear continues to believe that the most likely trigger for an end to monetary tightening in India is a further increase in external risk aversion. Still investors should also keep an eye on India’s government bond market where yields have started to fall. Please consider the environment before printing this email. The content of this communication is subject to CLSA Legal and Regulatory Notices These can be viewed at clsa.com or sent to you upon request.